Adding to the concerns of clients who invested with Yieldstreet, the company said in a letter to customers last month it was hanging onto $5 million in money from a settlement in a ship-scrapping deal that went bust in order to cover extensive legal fees.
Yieldstreet, which launched 10 years ago with the mission to widen access to alternative investments to Mainstreet investors, was put under the spotlight in August after CNBC.com reported that some customers who bought into certain estate real deals are facing losses of 100%.
Yieldstreet also marketed and sold a series of investments backed by ship-scraping loans. Some of those proved problematic.
In September 2023, Yieldstreet and the Securities and Exchange Commission (SEC) reached a settlement of $1.9 million, with the company facing SEC allegations of failing to disclose critical information to investors in a $14.5 million asset-backed securities offering involving a ship that was to be taken apart.
The process of disassembling a ship and then selling parts for scrap or reuse is known as shipbreaking.
Yieldstreet telling investors they are not receiving any money from a recent settlement is another example of the platform’s clients getting the short end of the stick, said one attorney.
“It’s odd for the investors not to get any money back in a settlement like this,” said Joe Peiffer, a plaintiff’s attorney who has sued Yieldstreet on behalf of clients over similar ship-scrapping deals. “The point of doing the work is to get the clients their money back.”
Yieldstreet for several years has been chasing the borrowers who defaulted on the loans for the ship deals in the United States and overseas, and in August reached a $5 million settlement with a group of those defendants.
But that’s not good news for clients, according to Yieldstreet.
“Throughout this process, the funds incurred significant litigation and enforcement expenses across four countries,” Yieldstreet wrote in a letter to investors last month. “That legal expense was necessary for the international asset recovery effort, and well exceeds the entire settlement amount.”
“As a result, the settlement proceeds will be applied against these outstanding fund expenses, with any additional distributions to investors expected to be de minimis,” according to the Yieldstreet letter. “Investors should demand to see Yieldstreet’s legal bills,” said one senior industry executive, who spoke privately to InvestmentNews about the matter.
When reached for comment, Yieldstreet provided the following statement to InvestmentNews:
“The settlement proceeds are being used to reimburse outstanding legal and other third-party expenses in accordance with the funds’ governing investment documents, not as corporate profit,” a Yieldstreet spokesperson wrote in an email. “Legal expenses for this hard-fought international effort well exceeded the settlement amount, and Yieldstreet assumed significant unreimbursed expenses and received no management fees during the recovery period.”
“Yieldstreet takes its fiduciary responsibilities seriously and will continue to pursue every reasonable avenue for investor recovery when fraud occurs,” the spokesperson wrote.
Yieldstreet, which has a FINRA registered broker-dealer and registered investment advisor with $1.86 billion in client assets, bills itself on its website as a “Leading Alternative Investments Platform." It has 500,000 clients.
The online company was founded 10 years ago by Michael Weisz and Milind Mehere, and the company has several well-known venture capital backers.
Update: Story has been updated to include Yieldstreet's comments to InvestmentNews.
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